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What next?

Oct 10, 2000

Well, the TMT sector has become a barrel of TNT blowing up in most portfolios and everyone is shell-shocked and confused. In the United States, Yahoo has collapsed from a high of US$ 260 to US$ 80 over the past few months and companies like Marimba, RazorFish (and thousands more) have seen their share prices collapse by 90% - US$ 100 has become US$ 10 or less. On the telecom side, the companies that were revered and seen as the leaders of the new information revolution have seen their prices collapse by 60%. KPN in Netherlands, VSNL in India, Smartone in HK – your nationality does not matter, your sector classification does. This disdain for nationality and domicile was what caused the share price of nearly every company in the TMT business anywhere in the world (USA, UK, Japan, Poland, India, Russia) to head skywards between October, 1999 and April, 2000. Now, the identical disdain for the domicile of operation is causing this rout in the share prices of companies in this sector. Investors are angry and confused. Angry because they feel like the victims of a gang rape and confused because they don’t know what to do. Analysts all over the world kept on touting this new age revolution and used the platform of a news-starved, hungry media to broadcast their fancies and fan the feverish gold rush. Most of the research analysts I know in this business from USA to India will do very well, thank you because their beautiful research reports got their companies the mandates for IPOs and mergers and acquisitions. The finance companies made great fees from all these public offerings and acquisitions and the analysts, since they wrote the research reports, get to keep great bonuses for their work. The investors, of course, may not be that lucky but their misfortune will be blamed on their greed.

Making forecasts is a difficult business and prone to mistakes, (I have had my fair share of wrong calls and probably will make some more stupid calls in the future) but what happened in the research world in those mad months is disgusting. Every country may have had its own reason for seeing the bubble blown into a bigger bubble. In the United States it may have been driven by the hunger for the fees from public offerings, in India it may have been driven by the desire to give the foreign and Indian funds thousands of pages of glossy paper to make them feel good about buying shares of existing TMT companies at crazy valuations. But the research analyst, by and large, failed. Very few people were willing to stick out their necks and say, “Stop, this is stupid”. Maybe they said it once, but then got overwhelmed by the madness of the crowd and changed their tune to participate in the momentum game: if everyone else is buying then may as well say, “Buy”. Which brings us to the next person who needs to be blamed for this disaster.

And that is you, the investor. It takes two hands to clap. While the research analysts may have been guilty of leading you up the garden path, the point is that you followed them. You let common sense be run over by your greed. The money was too good; the logic too simple, the neighbours said it was like getting money for free. So you have learnt your lesson, and you are wiser. Maybe poorer, but wiser. So where to now? What next?

Step back and plan your future. Make a list of things you need money for, and your existing sources of income and your existing assets. How much money do you need to reach your financial goals? How much of a return must you get to attain your goals? Do you need to save more every year to reach your goals? Do you need to find a way to re-deploy your stuck assets so that you can make more money on them? What is your appetite for risk? Would you like to see 100% of your money in high-risk, high-return TMT stocks or would you like to see only a fraction of your life’s savings in these high-flying new age stocks? These are questions that only you can answer. We at www.equitymaster.com and www.personalfn.com can help you by giving you all the tools you need to:

We can give you all the tools you need to take a more planned and disciplined approach to everything. Sure, we all like to gamble and hope that the next share we buy will go up by 100x and make us live happily ever after. And we can all hope that we can answer the correct questions and become crorepatis. But would you rather wait for that phone to ring and be invited to be a crorepati or would you rather plan for it while your neighbours wait for their phones to ring.

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